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Risk Tolerance: Does the Current Market Mean You Should Make Adjustments?

Risk Tolerance: Does the Current Market Mean You Should Make Adjustments?

May 11, 2022
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It’s easy to feel a little smug about your investments when the market is up. You feel confident you’re on the right path and that your dream retirement is just around the corner.

But when the market starts jumping around as it has been recently…that’s when you might be questioning if you’re positioned correctly. And that comes down to determining your risk tolerance, which can change depending on your stage of life.

The markets right now remind me of the Mike Tyson quote: “Everyone has plan until they get punched in the nose.” Or in other words, everyone thought they were comfortable with the risk in their portfolio but then the markets punched us in the nose.

Tyson’s quote is more profound than he might have realized because having a plan in place is key and that plan will help determine how much risk is appropriate.

When should you make adjustments?

If you’ve been losing sleep these last few months, it might be time to take a look at the amount of risk you have in your portfolio. Minor adjustments a long the way and even during a market correction could be appropriate. 

This is important to note: When we say adjustments we are referring to replacing one equity fund with another equity fund. What we are not saying is to adjust into cash from your equity positions.

And how should you do it?

As mentioned above having a plan in place is key. Historically, the markets always rebound - it is just a matter of when. If you have a plan in place it should have factored in these potential market declines.

An advisor can help you put together a plan or adjust an existing plan. Even if you have never met with an advisor or never formally put together a strategy you still had probably had your own plan in mind. Now might be the time to have an advisor go over your situation, which can be key to navigating these markets.

This is especially true for retirees who are pulling from their portfolio during a down market. As clients switch from the accumulation phase to the distribution phase it is extremely important to decide which assets are going to be used to fund the distributions. The sequence of returns early on in retirement can have a big impact on the overall plan down the road. A plan will hopefully allow you to avoid having to sell investments at market lows.

Past performance is not indicative of future results.